State of the (Economic) Union

US President Barack Obama is giving his State of the Union Address, but what positive notes could he possibly make? Many US states lost more jobs this past month, unemployment is high and the US economy in shambles.

Joblessness rose in 20 of the States as more works were laid off. In only a mere 15 states did the unemployed population shrink, the remaining 15 states continue to stagnate, reported the US Department of Labor.

Many economists expect hiring to pick-up in 2011, but the overall unemployment rate is unlikely to change significantly. The report confirmed what many already knew, the US job market is in a dire condition.

Throughout the US there are over 1.4 million Americans who have been out of work for more than 99 weeks, according to the US Congressional Research Service. After 99 weeks, these people lose their government funded assistance, making a bad situation even worse.

The US economy may be recovering for the rich, but it appears to only be getting worse of the middle and poorer classes.

Karl Denninger, the editor of The Market Ticker, explained Obama needs to stop spending and encourage savings; however he is likely to call for greater spending through investment, infrastructure development and special projects.

“I don’t know how he thinks he’s going to fund that,” he commented. “The answer thus far, during the downturn has been, we’ll barrow money. That’s a great idea right up until someone asks, how are you going to pay that back?”

Unemployment is feeding the problem of government overspending. With less people working, there is les government tax revenue. Without incomes to tax, the government’s coffers suffer.

The US needs to focus on creating jobs, companies need to base factories, innovation and opportunities in the US. However, for them to do so the government needs to create the right incentives and business environments for companies to return.

There are no easy answers on the economy, explained Denninger. He explained America needs to rebalance its economy.

“We need to incentive companies to come to the United States. The easiest way to do that is to change the tax system in radical ways, but that is politically very difficult to do because the tax system is used as a political tool to entice people to do various things,” he explained.

Obama is expected to call for a five year freeze on non-discretionary spending, however such a freeze will not impact overall government spending. Denninger said to cut costs one must cut entitlement spending, such as unemployment and other social programs. However, it is politically unpopular to do so.

In addition, the US needs to move away from a short-term focus on the economy and look to the long term.

Denninger explained, “Short term political considerations always way large, and that’s one of the problems we have. The structural issues we have in this country are not short term.”